Health Care You positively must have a health plan HMO s vs. health insurance Deductibles, co-payments, coinsurance Ben Affleck Why medical insurance To cover three types of financial losses due to injury or illness Direct medical care Recuperative care Lost income while incapacitated 85% of all Americans are covered by a health care plan (HMO or health insurance) Group plan or individual plan Group plan For many people it s possible to get health care benefits as part of a group Group plan has many advantages Much lower rates - based on group statistics Some employers may provide bare-bones group coverage at no cost as a benefit You can pay higher premiums to upgrade Easier for people with preexisting health problems to get group coverage None of Lehigh s plans has a preexisting conditions clause 1
Open-enrollment period Normally your employer will offer a monthlong open-enrollment period each year Pick your desired coverage Make changes to your existing coverage Add or subtract options Switch between different plans Often employers offer several different plans HMO, high-deductible insurance, low-deductible insurance, prescription drugs, vision and dental, etc. Individual plan If you cannot purchase a health plan as part of a group Buy one as an individual Do NOT go without a health plan Part-time employees may be able to buy their own coverage at group rates still much better than paying as individual But even if you must pay as an individual, buy a health plan Can t work at Lehigh without medical coverage General terms apply to all plans Important to understand the ins and outs of the plan you decide to purchase Hospital stays are covered, but Would a nursing home count? Would an osteopathic hospital count? Plan covers a family, but Are children born after purchase covered? Are stepchildren covered? What s an illness and what s an injury? 2
Deductibles Same as car insurance Insured person has to pay all of the initial expenses until the deductible is met minimum threshold Plan pays nothing until deductible is reached Typical deductible would be $200/yr for each person up to a family max of $500/yr Gabby has $180 bill no coverage => $180 to Gabby s deductible Emily has $250 bill - $50 is covered => $200 to Emily s deductible Matt has $250 bill - $130 is covered => $120 finishes family s $500 deductible Anyone (including Gabby) has $30 bill - $30 is covered Co-payments You have to pay a specific amount each time for specific covered expenses For example, $15 for each office visit For example, $5 for each prescription drug Co-payments are required even after your deductible has been met Coinsurance After deductible has been met, plan typically pays only 80% of covered expenses and you have to pay the remaining 20% up to a coinsurance cap (could be 70/30 or 50/50) After the cap is reached, plan pays 100% up to overall limits of the policy (typically $100,000) Deductibles, co-payments, coinsurance payments can be paid from a flexible spending account (pre-tax dollars) save receipts See tax module 3
Who pays your $20,000 medical bill? $250 deductible 20/80 split $1,000 coinsure cap You pay: Deductible $ 250 Share (20%) 1,000 Total $1,250 Health plan pays: Deductible $0 Share (80%) 4,000 After cap 14,750* Total $18,750 (1,250+18,750=20,000) *14,750=(20,000-5,250) Who pays your $20,000 medical bill? $250 deductible 20/80 split $1,000 coinsure cap You pay: Deductible $ 250 Share (20%) 1,000 Total $1,250 Health plan pays: Deductible $0 Share (80%) 4,000 After cap 14,750* Total $18,750 (1,250+18,750=20,000) *14,750=(20,000-5,250) Three types of health insurance HMO Health Maintenance Organization Limited to a specified network of doctors Least expensive plan PPO - Preferred Provider Organization or private health insurance More flexibility in your choice of doctors Higher premiums and expenses Comprehensive major medical plan Greatest flexibility Greatest potential exposure to unpaid expenses 4
Using Lehigh as an example Lehigh s benefits package comes with 51-page reference guide with 26 devoted to medical coverage and explaining the four available plans all of which are provided by Capital Blue Shield An HMO A choice of two PPO s or health insurance plans A traditional comprehensive major medical plan My purpose is to acquaint you with the basic similarities and differences between plans HMO Health Maintenance Organization Provides broad range of health care services for set monthly fee Hospital services Surgical services Preventive care services Available to both groups and individuals Fee based on average plan member s needs Example of a managed health care plan Managed health care plan HMO manages or controls conditions under which you can obtain health care Restrictions on which hospital or doctors you can use Requires pre-approval of hospital admission Places some restrictions on the types of procedures that you can have done HMO charges significantly lower monthly fees than health insurance plans and you avoid costly deductibles and co-insurance payments HMO covers 100% of your medical bills 5
HMO restrictions HMO requires you to select a primary-care physician (PCP) from an HMO list You can t choose just any doctor unless he or she is part of the HMO network Limited in your choice of doctors may not be a problem PCP must approve referrals to specialists (urologists, orthopedists, etc.) within the HMO network Cannot choose your own specialist may not be a problem HMO is not obliged to pay for any care not initiated through the PCP PPO Preferred Provider Organization - private health insurance Protects against financial losses due to illness, injury and disability Covers a wide-range of health care services Hospital services Surgical services Preventive care services Reimburses for your actual expenses after they ve been incurred PPO s pros and cons No restrictions on type and source of care Select participating providers from national network No need to select a PCP Can select any participating specialist without referral Usually dollar limits on coverage provided Max on individual, family, annual and life-time Max reimbursement for specific procedures May not cover 100% of your provider s fees You may need to make up the difference Can be paid from a flexible spending account Higher premiums than HMO s, plus Typically require deductibles and coinsurance 6
Major medical component Supplement to a PPO really designed to protect against catastrophic illness bills Designed to reimburse for broad range of expenses: hospital, surgical and medical Typically has $1 million max Maybe $1,000 deductible 20% co-pay Only kicks in after insurance plan ends Not needed for HMO s Comprehensive health insurance Combines hospital, surgical, medical and major medical into single policy $500 to $600 deductible 20% co-pay up to a cap Common to have $1 million limit May not cover entire bill and insured is liable Often available for groups Convenient for employers and employees Don t need to match each expense with a policy there s only one policy Not needed for HMO s Coverages provided by plans HMO s and PPO s both provide: Hospitalization coverage (80+% have this) Room and board of hospital stay Lab work, drugs, nursing services Surgical coverage Surgeon, anesthesiologist, hospital expenses, etc. Only pays normal charges insured may have to make up difference if actual fees exceed coverage Can be paid from flexible spending account 7
More coverages Medical expense coverage X-rays, doctors visits, drugs, etc. Maximum annual amount not HMO s Insurance deductibles not HMO s Insurance co-pays HMO s cover all areas regardless of size PPO s insurance plans have dollar limits Other coverages Available for both HMO s and PPO s Prescription drugs Range of coverage No coverage, generics only, comprehensive coverage The better the coverage, the higher the premium Dental and vision insurance Often add-on options Normally good idea especially for families Cover teeth cleaning and glasses & contacts Usually come out ahead in most years HMO s vs PPO s summary HMO s Significantly cheaper Lower premiums and no deductibles and coinsurance Restricted to doctors in the local network I I personally have never found this to be a problem No limits on coverages PPO s More physician choice but more expensive Freedom to choose virtually any doctor Do not need referrals to see specialists 8
Cost of Lehigh as an example Monthly premium LU s share CompMajor Medical 7.9% PPO 80 13.8% PPO 100 14.4% HMO 63.9% Employee $311 $63 $98 $129 $28 Employee and spouse $643 $168 $244 $311 $92 Employee and kids $586 $148 $217 $277 $79 Employee and family $929 $242 $352 $448 $132 The Buells Government health care programs Worry about these in 40+ years Medicare (administered by soc sec admin) Provide payment of hospital and medical expenses of persons 65+ who qualify for social security benefits Up to 90 days of hospitalization for one medical episode Medicaid (funded by government) Provides health care for the poor Eligibility based on income and net worth Consider disability income insurance Replaces a portion of your income lost due to injury or illness Could be important for young workers Disability more likely than death Very overlooked type of insurance Social security pays only if disability is total Can t work at any job Many employers provide group disability income insurance, but Insufficient benefits and for only short time (2 years?) 9
Supplemental insurance Designed to fill the gaps in coverage of the standard insurance plans Reimburses in addition to the standard plans Usually overpriced and not nearly as generous as ad campaigns suggest You re better off buying a major medical policy with high limits Much lower cost Aflac Type of supplemental insurance American Family Life Assurance Company Provides income directly to you if you are hurt and can t work Gilbert Gottfried is the voice of the duck Ben Affleck is mocked because of the duck Married couples Avoid unnecessary duplication of benefits Just go with the better plan You don t need two plans Just add the spouse to the better plan Drop the worse plan and invest the saved premiums in a mutual fund 10
Summary Buy into a health plan HMO s are much cheaper than PPO s, have no limits on coverage but restrict you to doc s from a local network problem? PPO s are more expensive, have caps on some coverages, but give you greater freedom to go to any doc you want without referrals 11